VA Loan Live Hangout, Oct. 11, 2013

Chris Birk: Hi. I’m Chris Birk from Veterans United Home Loans. Welcome to the latest edition of VA Loan Live, our weekly question and answer session about VA loans and military home buying. As always, I’m joined by Samantha Reeves, our senior mortgage and home buying writer. Sam, great to see you.

Samantha Reeves: Yeah. You, too.

Chris Birk: And back again in the loan officer hot seat is Alberto Barba, one of our longtime VA Loan Live favorites. Berto, welcome back.

Alberto Barba: Awesome. Glad to be here.

Chris Birk: We have a ton of questions, and we’re excited to go through as many as we can in the next half hour or so. You can watch this live every Thursday at 1:00 Eastern, 12:00 Central at VeteransUnited.com/valoanlive. Any other time, day or night, that’s where you’ll go to leave us a question, which if we don’t get to during this live hangout, we’ll still make sure to get you a response, and give you the information you need to take advantage that you’ve earned through your service and sacrifice. You can also reach us on Facebook at Veterans United Home Loans, VA Loan Insider, Future Military Homeowners, and so many other amazing communities we have. We’re also on Twitter, of course, @veteransunited. You can reach me any time day or night with questions. It’s Chris@vu.com. Sam is Samantha@vu.com. And Berto, what’s the best way to get a hold of you?

Chris Birk: And we will be giving out Berto’s contact information over and over again over the next few minutes. Again, thank you for all of your questions. Please keep them coming in. This is what we do. This is what we live to do, is help you get the information you need. There’s so much misinformation out there about this loan program. I know you hear from people all the time who don’t understand what’s available to them, what they’ve earned through service and hard work and sacrifice for our country.

Let’s go ahead, Sam, and jump into a laundry list of questions that we have. We wanted to address this right away. We’ve got questions from Amanda, George, Alice, Bob, Marcos. And I know we’ve both seen questions on Facebook over the last couple of days, about what’s been transpiring in Washington over the last week or so with the government shutdown. Tons of questions about its impact or potential impact on the VA home loan program. We wanted to just give a blanket statement about how it might or might not be affecting the program and you, before we start to go through some of the other questions. So Sam?

Samantha Reeves: Yeah, so it’s important to note that the VA loan program is not affected, but other aspects of the loan process could possibly be affected. So right now, the VA loan program is doing just fine. But as is with any type of closing, there could be third parties or other issues that arise that could cause some delays. So it’s really important to get in touch with your VA mortgage specialist. And since everyone’s case is different, they’ll be able to give you the best answer to the question and how it relates to your specific circumstance.

Chris Birk: Great. Thanks, Sam. Berto, we have, as usual, a lot of questions about credit and credit scores. First of all, before we get to some of those questions, generally how important is it, and when does it come in to play? Are you going to ask me about my credit score when we first talk, or do I not need to worry about it after a few days or weeks.

Alberto Barba: This type of general questions, then if you know your credit score, great. I can give you general answers based on that. If you’re looking at getting pre-qualified on the loan, and that’s basically a verbal application and a credit application, we are going to look at credit scores at that time. I do think it’s very important to look at the credit score as early as possible, especially when you’re thinking about buying a home, because the earlier you know your credit score is below a certain mark, or there are things that need to be fixed, it gives you more time to get that set up before you a mortgage prior to you actually buying a house.

Chris Birk: So both Precious and Inez asking about generally the type of credit score that a VA lender is going to look for.

Alberto Barba: Most lenders across the board are going to look at a minimum credit score of 620 out of the three. There are three different credit bureaus. There’s Experian, Equifax, and then FICO. And what they’re going to do is they’re going to eliminate the top and the bottom and they go from the middle one. In an instance whenever there is no credit score at all, we begin with the alternative trade line, so you’re okay to apply, as long as you have a steady rent payment that you’ve been making on time. Or if you just have two credit scores, then they’ll go with the lowest of the two.

Chris Birk: Sam, do we have an idea of how that stacks up, the 620 benchmark with other loan programs? I know people will wonder about FHA loans or conventional financing, and what kind of scores you might need for those loan programs.

Samantha Reeves: Yeah. For both FHA and conventional, you’ll need a higher credit score. I think FHA is 20 to 60 points higher, depending on the lender. Conventional you’re going to need probably at least a 720. So there’s a huge gap there of individuals, of veterans, that we’re going to be able to help with the VA loan, that might not qualify for other financing.

Chris Birk: And I actually just looked at the numbers on this. In August, the average credit score on an FHA loan that actually went through to closing was 695, which is 75 points higher than that we’re currently looking for. That’s one of the biggest benefits of this program. I think the singular benefit is the fact that qualified borrowers can purchase with no money down, which is almost unheard of in the current real estate and housing market. But close behind it is looser credit standards and requirements, and that’s just the nature of this program. It’s geared to help level the playing field and get veterans into homes, and that’s a big part of it. Because no matter the type of loan, FHA, conventional, USDA, VA, credit scores and credit is going to play a factor.

Samantha Reeves: I’d probably chime in there, too, and say even though there’s lower credit score requirements and veterans may have lower credit scores, with the VA loan, the percentage of foreclosures is much lower than a lot of other loans. That’s because of this VA guarantee.

Chris Birk: It’s actually over the last five years, no one has been able to beat VA loans in terms of the foreclosure rate, which is incredible considering that nine in 10 people who use this program purchase without putting money down.

Alberto Barba: It’s a testament to our veterans as well out there. One other thing to note as far as the benefit goes, private mortgage insurance. So PMI.

Chris Birk: Absolutely.

Alberto Barba: That’s huge. That can add another $150 to $200 off your monthly payment that most of the way through you don’t have to pay.

Chris Birk: Can we try to just briefly explain what PMI or private mortgage insurance is?

Alberto Barba: Sure. Yeah. Private mortgage insurance is basically an insurance premium that the lender’s going to hold when there’s not 20% equity in the house, and that’s basically for liability reasons. So if foreclosure does happen, the PMI company will come in and they’ll pay the loan off. They’re going to pass that premium off to the purchaser. So if you don’t have a 20% down payment, as in FHA, and many 10% conventional loans, then you’re going to carry that private mortgage insurance. Due to the fact that VA is actually guaranteeing 25% of the loan, if something were to happen back to the lender, that 25% is more than the 205 needed, and so PMI is not on the loan.

Chris Birk: And the VA estimates that that saved veterans who got loans last year $19 billion over the life of their loan, which is incredible.

Samantha Reeves: It’s huge.

Chris Birk: And FHA also has its own form of mortgage insurance, too, and this is a recent change that now you’re paying that mortgage insurance for the life of a loan on an FHA loan. There’s an up front, and then a monthly that you’ll pay now for 30 years if you get a 30-year mortgage. It’s an incredible benefit. On the flip side to this is the VA funding fee.

Alberto Barba: Yeah.

Chris Birk: Can you talk briefly about how that works?

Alberto Barba: Sure. I would like to say that FHA has a funding fee as well, though. So it’s not… a little increase. But the funding fee, basically if you don’t have 10% or more service-connected disability for first time use it’s going to be 2.15% for the active duty member, 2.4% for national guard and reservists who are eligible. Every subsequent use, it’s 3.3% of the loan amount. Now that’s rolled on top of the mortgage. You don’t have to bring that to the closing table. Don’t need the seller to pay it. It’s automatically rolled on top of the loan. You do put 5% down every single time it’s reduced to 1.5%. If you put 10% or more down, it’s reduced to 1.25%. Again, I want to reiterate that if you have 10% or more service-connected disability.

Chris Birk: I was actually just talking with someone on Facebook about this this morning. They raised this point about PMI and the VA funding fee. Running some numbers, on a $150,000 mortgage at that first time 2.15% rate for the fee, you’re talking about $9 a month over the course of 30 years. That’s really the cost of getting into a home right now without having to make a down payment. It’s still an incredible benefit. It’s also important to mention, this is a fee that the VA charges. It’s not something that Veterans United charges, or any other VA lender. It helps keep this program going. And more importantly, it keeps itself funded. The VA loan program doesn’t get congressional appropriations, which given the current political climate, you can understand why that’s so incredibly important. And so that’s why that fee is so integral. It keeps this program going for future generations of homeowners, and it keeps it out of any congressional budget process.

We had a couple more credit questions, and I think this is a great time to talk about our lighthouse program. Elisha was asking that they didn’t get qualified. Their credit isn’t horrible, but it’s not particularly great. Is there a time limit on when they can apply again, and what can they do to help improve their score, Sam?

Samantha Reeves: Yeah, absolutely. Like Chris mentioned, we have a really great program called our Lighthouse Program. What they do is they’ll work with any of our veterans who have credit scores below 620. What they’ll do there is give you suggestions on ways to improve your credit, tips that you can do that might boost your score 60 points in a month. It varies from circumstance to circumstance. But give our Lighthouse Department a call, and they call walk you through the entire process. So whether it takes you a month to get your score to a 620 or higher, or it takes you two years, they’re going to walk you through it step by step the entire way, and it’s totally free. So it’s a really good benefit that we offer to all of our veterans, not just current borrowers. We want to help you get into that home.

Chris Birk: We have a question from Carl, who is a veteran of Desert Storm. Carl, thank you so much for your service. Carl has a 50% disability rating. He also has a poor credit score. He says below 650, but he has good income. Can he qualify? So below 650, it’s hard to know exactly where your score is. But in general, if I don’t meet the benchmark for credit, but I’ve got great income, great assets, can I qualify?

Alberto Barba: Unfortunately not. There is a minimum score requirement. It is 620. The nice thing, though, is that, again, talking to the Lighthouse Program, they can basically put you on a program in which you can pay off your current debt, perhaps collections, let you know exactly what you need to do. And if you have a lot of income coming in, then you’re going to have a lot more room and capabilities of doing things to improve your credit score in the short term.

Chris Birk: We just had a question come in from Matt, who’s asking about closing time frames for foreclosures in California. There’s no doubt a lot of specifics in here that we would need to really address this particular property. But is there anything we can tell Matt in general about purchasing a foreclosure? I don’t know if you’ve closed a loan to California recently, anything about the market there.

Alberto Barba: Yeah, a couple of them. California in general is a pretty hot market. There’s a lot of homes that historically speaking sell pretty quickly, and above what they’re actually appraised for. The thing about foreclosures is the condition of the property.

And so when you’re dealing with a foreclosure bank, because they’re getting so many offers on them, especially in California, they’re going to write in a clause that they’re selling the house “as is.” And that “as is” clause basically means that they’re not going to do any work on the house, a lot of times won’t even pay for the termite inspection, which is actually a VA non-allowable. They’re required to pay for the termite inspection. And won’t do any repairs. I do many foreclosures in California and every other state, and I close a lot of them in 30 days, depending on the situation sometimes in 60,90 days. You know, if the house needs a lot of repair work done, and you get into a stalemate with the sellers, basically you’re going back and forth, and that can take time, especially in a foreclosure when they’re going up the channels. There’s not one person that makes the call on that to the bank. It probably sits on somebody’s desk there at the bank for a while before a decision is made.

Chris Birk: So Matt, if you want to talk in much more detail about your specific property and situation, give Berto a call, send him an e-mail. What’s the best contact info for you?

Alberto Barba: My phone number-wise, it would be 1-800-814-1103, and then my extension is 3230.

Chris Birk: Perfect. New construction, which is always an interesting topic when it comes to VA loans. You can absolutely use this program to build a new home. But that’s not always the whole story. We have a couple questions, one from Sean, and one from Israel and Nicky, asking about the process, and is this something you can even do with a VA loan. So Sam, how do we look at new construction in the VA program?

Samantha Reeves: There are two different types of new construction. There’s new construction that’s financed by the builder, and we generally just treat that as a normal purchase contract. So there wouldn’t be much differences between that and a typical purchase of a preexisting home. And then there are new construction where you, yourself, want to finance the construction portion, or want to get a loan to finance that. In those situations, what you have to do is find someone that will provide temporary financing for the construction loan, and then come to us and we can talk to you about permanent financing. You’ll want to do both of those steps about the same time. You’re going to want to get your permanent financing and your temporary financing lined up to make sure that you know how much you can qualify for, for the permanent financing. But the difficult part with this is, it is definitely something that is possible per VA guidelines. But you have to find a lender that’s willing to loan these temporary construction loans, which has become a little bit more difficult. So search around. Give us a call to talk about permanent financing. See if you can get that builder to finance a temporary construction and look into some options there. It’s definitely something you can pursue. We just have to find the right setup for you.

Alberto Barba: Just to add on that. When it comes to building your own home, there’s a lot of builders that will finance it. A) They’re going to want to see that you’re approved, so you are going to need to get pre-approved first. And they’re also going to want a sizable down payment, some sort of earnest deposit. If you think about it, these builders are building a house from the ground up. Well, if you decide you don’t want the house at 80%, they’ve invested all this time and money. They don’t want you to just back out. They want some sort of solid commitment from your end, and that’s where the down payment comes in.

Chris Birk: Are you still doing a lot of new construction?

Alberto Barba: Yeah, I do a lot of new construction. I have a couple clients watching right now that we’re in the process of it actually, that they’re almost completed on their home. It’s a great loan program for new construction, if you have a little bit of money for a down payment on the house, are you going to build a brand new house at 100% financing. Now the builder does need to be VA approved. It’s not difficult to get them VA approved if they’re not already VA approved. That’s something up front that will need to be done. But aside from that, do I think new construction is a great loan for veterans to use if they are looking at building a house. And again, that’s on the construction site. So new construction, the house is already built, no problems at all if it’s never been lived in. But on the construction side, it is possible, but be prepared to put down a sizable down payment up front just to give you some sort of commitment and the builder peace of mind.

Chris Birk: So let’s shift gears and talk a little bit about co-borrowers and co-signers. Can I have my dad, my mom, my wife, my sister, who can be on this mortgage with me?

Alberto Barba: Yeah, technically speaking it’s just a married spouse. There are some instances, if the other person’s going to be living in the home and is a veteran as well, in which you can get full entitlement. And you have your mom or your dad or your grandma live in the house with you. That’s not an issue at all. They can live in it. But to actually be on the loan program with you, and basically for qualifying reasons and/or income reasons, they both need to live in the house and have been a veteran.

Chris Birk: Sam, is there anything else about co-borrowers that you think’s important to mention? I mean, community property states comes to mind. But anything else?

Samantha Reeves: Yeah, absolutely. Everyone that’s on the loan has to meet the credit requirement. So if you as a veteran have above a 620, but your spouse doesn’t, they’re not going to be able to be included as a co-borrower. But if their score’s above that 620, then you should be good to go, assuming they meet all of the other requirements. But in situations like a community property state, like Chris mentioned, you’re going to first decide if you want your spouse on the loan with you. If not, we still have to include that spouse’s debts on the application. Even if they’re not on as a co-borrower, they’re still going to be included in the debt section.

Chris Birk: And there are ways to offset those debts in certain situations. Actually we’ve published a lot of good information online about this. You can go to my blog, which is vu.com, or VeteransUnited.com/VAloans. We’ve written about community property states before. There are nine in the country, and if you’re purchasing in one of these nine, it’s definitely something you’re going to want to know about.

So I want to remind you you’re watching VA Loans Live from Veterans United Home Loans, with Samantha reeves and Alberto Barba.

We are going to talk about appraisals and inspections. Jamie, by the way, I hope that answered your question about co-borrowers. If you have any other questions or you want to talk more, please send Alberto an e-mail, give him a call. He’ll definitely be happy to go over your situation with you.

Denice had a very specific situation, and we try to stay away from getting into specifics too much, because every loan filed is different. Everyone’s circumstances are different. It’s tough to really talk about specific situations without having all the necessary information. But generally, in Denice’s situation, under contract on a home, her appraisal was done before the home inspection. I guess the VA appraisal went through without a problem, but the home inspector turned up some problems, and there were just some general issues with it. So can we talk generally about appraisals, inspections, and the differences?

Alberto Barba: The appraiser is going out there to give a value of the home. Their job is to make sure that the home is not selling for more than what it’s actually valued at. I always recommend that…

Samantha Reeves: There’s the details of the roof, and the flooring, and the basement. It’s going to look at all of the details. Whereas, an appraisal, they’re just going to kind of do a walk through, get an idea of the general shape of the home and assess a value. The home inspector is going to be able to point out all of those little problems that could turn into big issues. Whereas the appraiser, they’ll note some issues if they’re pretty obvious. But their main job is to issue that value.

Chris Birk: I mean. Go ahead.

Alberto Barba: I also wondered, with the appraisal, he’s going to go out there by himself many times. You’re not going to be able to follow him around the house and talk to him about the actual inspection. But the inspector you can. You can go out there with him at the same time, and he can point things out to you that the homeowner should acknowledge as well.

Chris Birk: We did exactly that. We learned so much. They were there for three hours, almost four hours. We walked around, looked at some of the issues. The other reason it’s so important, is that depending on your contract, and this is pretty much across the board the way it works, if issues come up during that home inspection, you can use those issues to renegotiate with the seller. You’re also going to have almost always an out clause that lets you walk away from that property if that inspection turns up some major issues. Consider it mandatory. A home inspection isn’t. But just consider it mandatory. It’s an investment. It’s money well spent every single time.

We had a question just come in via e-mail from our VA Loan Life page, which is VeteransUnited.com/VALoanLive. Ray’s asking, is this loan guaranteed for any amount? Does it depend on your credit score? Does the VA program cover closing costs? So I guess first let’s talk about the financial guarantee versus being guaranteed, or being promised a loan and then how credit comes into play, and then maybe Sam can talk about closing costs.

Alberto Barba: Sure. The guarantee, the VA guarantee is actually a guarantee between the VA and the lender, and that’s 25% if something were to happen, foreclosure, short sale, whatnot. So the guarantee is not a guarantee that you’re going to get a loan, but a guarantee between the lender and the Va. Eligibility is a different issue. Eligibility means you served your time. You are eligible for the VA loan and no one’s going to take that away from you. You’re eligible for the rest of your life, as many houses as you want, actually, one house at a time for your primary residence. You do have to meet minimum credit score requirements, which is 620, and then you have to be able to afford the house you’re getting into. We’re not going to put you into a situation and give you a half million dollar loan if you can’t afford a half million dollar loan. Debt to income ratio is a big factor. VA is a lot more lenient than most other loan programs when it comes to debt to income ratio. So you’re going to get pretty much as much as you can spend on a monthly basis with a VA loan, whereas FHA and conventional are a lot stricter when it comes to those guidelines. But it’s not an automatic you can go out an purchase as much as you want.

Chris Birk: Sam, you want to talk about closing costs?

Samantha Reeves: Yeah, absolutely. So with the VA loan, closing costs cannot be rolled in on top of the loan. So you need to talk about those early and often with your realtor and with the seller. It’s always ideal if you can negotiate closing costs to be paid by the seller in the contract. If they’re not open to that idea, there’s always an option that’s kind of like rolling it in in a sense, because what you do is you say, “Okay, I’m going to agree to raise the purchase price of the home X dollars, and you’re going to pay that same amount towards my closing costs.” So it gives the seller the same benefits. They’re going to get the same amount of money. But it also allows you to get some of those closing costs covered. But the VA does not pay for your closing costs, and there are closing costs with VA loans. I think that’s one misconception, is the difference between closing costs and down payment. So closing costs are involved with the VA loan. They cannot be rolled in, but you can negotiate with the seller to pay those.

Chris Birk: And the VA funding fee, which we talked about earlier, that is the only, it is considered a closing cost. That can be financed into the loan. But Sam’s absolutely right. Everything else is going to have to be covered up front. Now one of the other great benefits about this program is that you can ask your seller to pay every last dime of your closing costs, and we see veterans every month who walk away from the closing table with their keys in hand, and they didn’t spend any money out of pocket at the end of the day, because they got it back at closing, which is utterly amazing. It’s an incredible program.

Alberto Barba: And there’s also instances, there are some [inaudible 00:24:38] we mentioned earlier, like California, in which the sellers just aren’t paying closing costs, are not going to accept your offer if you offer it with that. You can get about half to two-thirds of your closing costs paid for by your lender, but you’re also compromising. You’re getting a higher interest rate. So over the life of the loan, it’s probably not the best idea. But if you’re in one of those markets where sellers just are not accepting any offers with closing costs being paid for by them, there are other options if you don’t have enough yourself.

Chris Birk: Because nationally the average VA borrower has just under $7,000 in assets. It’s not an issue of you having to scrimp and save for years and years to be able to use this program. That’s why it exists, is to help get veterans into homes today. Some of the options that Sam and Berto have talked about in terms of finding creative ways to get your closing costs covered, it can get confusing, especially for people who don’t deal with this every day. So if you have questions, if you’re not sure, please contact Berto. Send Sam or I an e-mail. We’ll be happy to go over your situation in detail and give you a sense of what might be possible.

We have another question that just came in live via e-mail from Bill, who wants to know, is there a maximum number of days that he can lock an interest rate?

Alberto Barba: Right now, currently, it’s a 60-day lock, and then you can actually extend it twice, for 25 days apiece. And so you can lock it an interest rate up to 110 days.

Chris Birk: Perfect. Matt, who just asked us the question a little while ago on closings on foreclosures in California, just shot us a message back and asked, the termite inspection, is it still mandatory?

Alberto Barba: In many states, it is. If you’re in one of those states where it’s just freezing cold and there are no termites, Wisconsin comes to mind, termite inspections aren’t required. I do also want to point out that California, going back to California, there’s section 2 items on the termite report in which many instances those are required to be reviewed and repaired on a case by case basis. I know it’s widely believed out in California that section 2 items aren’t important, and are not required. But it is a case by case basis.

Chris Birk: This is a great question from Bethany. It hits on so many things that we talk about day in and day out in terms of financially preparing for home ownership. Bethany’s asking, in terms of the processing time, in terms of getting through the VA loan process, are there things that she can do on the front end to help it be a quicker process, to reduce that overall time.

Alberto Barba: Yeah, most certainly. I think the more proactive you are as far as calling your loan officer and asking for updates [inaudible 00:27:22], and the quicker you are at turning those items around to them, the easier the process will be. I generally ask for a lot of documentation up front, so don’t let that turn you off. The reason for that is, I’m trying to get all the documentation that I need, and the quicker you get it to me, the quicker we can get to closing.

Chris Birk: Sam, you’ve written about this actually very recently, in terms of financially preparing. Are there things even before Bethany picks up the phone and calls Berto that she can do.

Samantha Reeves: Yeah, absolutely. First thing is, look at your credit report and see if there are any issues on there that need to be addressed. Mainly what we’re looking at is, is your name spelled correctly? Is your social security number right? Are there any accounts on there that you’re unfamiliar with, and do you need to dispute those? Or if you’ve had judgments int he past but have gotten those cleared up, you need to check and make sure that it’s reported accurately on your report. So take a look at that credit report. It’s more than likely not going to give you your credit score on there, because that’s generally something that you have to pay for. But if you go to FreeAnnualCreditReport.com, you should be able to access a free credit report, I believe it’s once a year.

Alberto Barba: And I would also like to note, there’s a lot of documentation that you just don’t keep on file. One very important thing, especially right now with the government shutdown, is your tax returns. So try to get those. If you don’t have them on file, your complete tax returns, get them from your tax advisor. If you do it at TurboTax, they keep figures there. W2’s, 1099’s, you can get your W2’s from your employer. Make sure you have that stuff up front, because it can get difficult to get. When the government’s not shut down, we can order a lot of that stuff. But right now with the government shutdown, tax transcripts, W2’s, are things that we can’t get.

Chris Birk: The second part of Bethany’s question, we did hit on it earlier. She was asking about purchasing a fixer-upper and things she needs to know. Berto talked about it earlier in terms of some of the property requirements that VA loans have, and making sure. This is an area where it’s so incredibly important to work with a real estate agent, with a realtor who knows VA loans, who can see that property and immediately know that’s going to be a problem. That might be a problem. So important. I urge you. VeteransUnitedRealty.com, that’s the website. It’s a national network of more than 5,000 realtors across the country who work routinely with military borrowers, who know this program inside and out. They can save you a world of time and money, headache and hassle, by working with you on the front end. So please look for a realtor who works with veterans. It’s a program unlike any other that’s out there.

Alberto Barba: There’s nothing more frustrating than getting your hopes up on a house, paying for appraisals and inspections, finding out that we can’t do the loan, and that could have been [inaudible 00:30:15] up front by a real estate agent that knew that this was not going to pass the VA inspections in the first place.

Samantha Reeves: I’d also, chime in here. I just wrote a blog on this in the past couple weeks. So if you go to our network of blogs, then you can see there’s a whole blog about fixer-uppers and pros and cons that you want to weigh before deciding to pursue that type of home.

Chris Birk: And you can get there at VeteransUnited.com/network, is where you’ll find our incredible online community. We have more than four million followers throughout our social networks. It’s a great place to get questions answered, to talk with not just our customers, but with veterans in general, get their take on this program and why it’s meant so much to them

Debt to income ratio, this is like getting more hardcore VA loan, which I know we all love to geek on. Melissa’s asking about DTI, not too specific, but she’s asking about disability and education income, if those are able to count toward, or if they’re factored in when we calculate DTI ration. I think she’s under the impression that disability income doesn’t.

Alberto Barba: Short-term disability does not. If it’s not guaranteed to last for the next three years. VA disability, Social Security benefits, even if it’s for dependents, as long as it’s going to be coming in for the next three years, is claimed. GI Bill educational benefits unfortunately is not. It’s one of those things that we just can’t guarantee that it’s going to continue to come in. So unfortunately we can’t use it [inaudible 00:31:46]. But Social Security disability, most certainly. And again, going back to the other loan programs, the debt to income ratio, VA is the most lenient there is out there when it comes to debt to income ratio.

Chris Birk: Well, as far…I just want to add to, just so everybody out there watching knows, that’s not a Veterans United issue in terms of education income. Conventional mortgage, FHA mortgage, there’s not a lender or a loan program out there that considers education income as stable, reliable income that’s likely to continue. We could get into a huge debate about how much sense that really makes when we look at other military allowances that are out there. But that’s not a road we want to go down. Melissa, I hope that answers the question about DTI ratio and disability. She asks a specific question about our guidelines as far as DTI ratio is concerned. It’s going to depend on some specific things, but is there anything we can tell her in terms of how high? We know the VA generally has a benchmark. They want to see your DTI ratio at 41% or less. But that doesn’t necessarily mean that if you have a DTI ratio above 41% that you won’t be able to get financing.

Alberto Barba: Generally speaking, we like to see it around 45%. We do go up to 50%. Me personally, we’re going to have a deep conversation about your budget if you start getting close to the 50%. In certain cases, if your credit score is an excellent credit score, we could even go up to 55% debt to income ratio. There are instances where there’s income coming in that we’re not accounting for. Maybe it’s part-time income. Maybe it’s [inaudible 00:33:14] that’s not on the loan due to credit reasons income. And so we can use that as a compensating factor. But generally speaking, you need to be at 45% or less, or like I said, we are going to have a good conversation in regards to your finance and your budgeting. I just want to make sure that you’re not getting yourself in over your head on mortgage payments.

Chris Birk: We’ve got time for two more. We’re going to hit this one quick. It just came in from Gary, who asks, does the VA pay toward the down payment, or help with it.

Samantha Reeves: Gary, that’s a great question, and I think it’s a common misunderstanding. The VA doesn’t require a down payment. So you don’t have to put one down in most circumstances. What they do is guarantee a portion of your loan. So like Berto talked about earlier, if you were to go into foreclosure, then there’s that guarantee of that 25% of the loan. So because of that, no down payment is required. That doesn’t mean you can’t put one down. You can if you choose. But the VA guarantee is what the VA does to help veterans into homes. They don’t put down a portion of the purchase price as a down payment. They guarantee that part.

Alberto Barba: I get this question quite a bit. I think a lot of people get confused down payment and earnest money. Earnest money is basically something that you’re going to put with the contract of the home. The real estate agent’s going to ask for that up front. It’s basically, you’re telling the seller that you’re committed to buying this house. As long as you go in full faith and try to purchase this home, you should get that earnest money back at closing if the seller is paying your closing cost for you. If you do put a house under contract, get cold feet, walk away from the house, then that earnest money, or sometimes people think of it as a down payment, goes to the seller for their time lost on the market. The VA won’t help you out with earnest money deposits. It’s also not a requirement for you to offer earnest money. The sellers, especially if the house hasn’t been on the market very long, will most likely not take your offer without some sort of earnest money deposits. But I see a wide range. If it’s a hot market and you really, really want the house, I’ve seen $1,000 earnest money. I’ve seen as little as $100, $50, and even offered with zero dollars earnest money down.

Chris Birk: Wow. That’s incredible.

Alberto Barba: Yeah. It is.

Chris Birk: We are going to wrap up this weekly Thursday edition of VA Loan Live with Matt, Donna, and Cheryldean all asking a general question at it’s most basic. How do I get started?

Alberto Barba: Awesome question. Yeah, you can contact me at 1-800-814-1103, extension 3230. You can e-mail me. If it’s after hours I can respond back to you via e-mail if you prefer that route. It is Alberto@vu.com. Or you can visit our home page at VeteransUnited.com.

Chris Birk: Sam, any parting words?

Samantha Reeves: I think even if you’re considering purchasing a home, but you don’t have a specific one in mind, or are six months off. Give Berto a call, and get everything looked at, so that you can make sure that you’re in a position to qualify when the time comes and you’re ready to purchase.

Chris Birk: Perfect. Alberto Barba, Sam Reeves, thank you so much for joining us, as always. Thank you for watching our latest edition of VA Loan Live. We look forward to getting to the rest of the questions we didn’t get to. We will make sure you get a response. And we will see you next week.

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